Part 3 More about
the market

Timing

'The
market always rises over time.'

This deceptive statement is
used, often by ostensibly respectable brokers, to
justify investing in a bloated sharemarket where the
odds are stacked against you. The implication is that
it doesn't matter too much if the market crashes,
because as long as you are a long term investor your
shares will eventually recover and be worth more than
when you bought in. It is similarly used to discourage
blue chip investors from exiting the market when they
feel that a correction is overdue. Hogwash! I say
it again...Flapdoodle! Bunkum! Such an argument can
only be justified if you are quite unable to distinguish
one part of a market cycle from another.

If you passively hold your
portfolio through a crash, its capital value at some
point will probably halve. 'Who cares?', you might
ask. 'It will regain its value over time, and meanwhile
the dividend flow will continue.' The obvious point
though, is that if you had exited prior to the crash,
even if it meant sacrificing ten or even twenty percent
capital appreciation during the final bull run, you
would still be able to buy a significantly bigger
portfolio back for the same money. You would have
more shares, you would get more dividends, you would
be better off. Sorry, but no amount of semantics or
cute sayings can disguise that fact.

Of course this is simplifying
the argument somewhat. There may be taxation implications
in selling and buying back shares and there is the
brokerage to be considered. On the other hand, a good
sense of timing may mean that you only sacrifice a
minimal percentage of bull market gain, if any. Markets
seldom crash in mid bull-run with no warning at all.
Exiting the market completely sometimes can also be
viewed as an opportunity to rejig your portfolio.